I'm the Founder and Managing Partner of Ironfire Capital LLC, which runs a tech-focused hedge fund and angel fund. I did a Ph.D. in Management at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management. You can follow me on Twitter @ericjackson, subscribe to me on Facebook, follow me on Sina Weibo, or Circle me on Google+. My email is: dr.eric.jackson@me.com

Steve Jobs Used Patents to Get Bill Gates to Make 1997 Investment In Apple

I continue to be amazed at the Silicon Valley visceral reaction to Yahoo! (YHOO) deigning to insist that Facebook (FB) pay for trampling on Yahoo!’s 10 – 20 patents.

There seems to be a gulf between my views that intellectual property deserves to be protected by law and those who think the whole US patent system should be junked and a Chinese copycat system replace it.

Rather than engage in that debate, let me point out that – as the US patent system is likely here to stay – Yahoo! is merely protecting its patents in a similar manner that Steve Jobs did back in 1997 when he took over Apple (AAPL) which we know now was days away from bankruptcy.

A colleague reminded me of the following passage from Walter Isaacson’s Jobs’ biography about how Steve Jobs got Bill Gates to save the company with a $150 million investment – this is Jobs speaking:

I called up Bill and said, “I’m going to turn this thing around.” Bill always had a soft spot for Apple. We got him into the application software business. The first Microsoft apps were Excel and Word for the Mac. So I called him and said, “I need help.” Microsoft was walking over Apple’s patents. I said, “If we kept up our lawsuits, a few years from now we could win a billion-dollar patent suit. You know it, and I know it. But Apple’s not going to survive that long if we’re at war. I know that. So let’s figure out how to settle this right away. All I need is a commitment that Microsoft will keep developing for the Mac and an investment by Microsoft in Apple so it has a stake in our success.

Luckily, contrary to the received wisdom of Silicon Valley bloggers, Apple kept innovating. I’m not sure the 1997 equivalent to tech bloggers shouted that investors should immediately start shorting Apple’s shares because they “stopped innovating” and “relied on patents.” If they did, they got hurt. Maybe the bloggers back then would have said Apple’s employees’ morale would be so low that the company would no longer be able to compete.

But Steve Jobs never did care about the bloggers’ views. He did what he had to do to run his business. Yahoo! will do what it has to do.

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One of the constant myths by Microsofties is that MS saved Apple. What they forget to mention, and what you posted here, is that MS had clearly stolen from Apple. They especially stole code from Quicktime. Jobs and Apple could have won billions and possibly put MS out of business. Instead, they agreed to license patents and MS agreed to continue to develop Office for Mac and put in $150 million, which at that time was petty cash for Microsoft. Jobs turned Apple around and also saved Microsoft from fiscal destruction.

Jobs saved MS from financial destruction? That is a good one. Even if Apple had sued they would have died before the case was resolved per Jobs’ own words. Quicktime patents are not equal in value to MS. It to government intervention to slow MS down so to think Jobs and Apple could have done that is silly. Gates made a potentially serious problem go away for what amounts to a very low price. This point is extremely important and certainly ignored by the Apple “nutswingers”. You don’t have to put down Gates to pump up Jobs or the other way around. Both are/where very good at what they were doing.

Were you high on drugs when you wrote that? That is the biggest load of nonsense ever. Microsoft could have crushed Apple, and some would argue that they should have done just that. That’s an argument for another time and place.

Just for the sake of discussion, let’s assume they won a patent lawsuit. Are you delusional enough to believe that any court in the world would give Apple a big enough award to kill Microsoft, which was quickly on it’s away to becoming a global giant? In fact, it already was. Obviously you haven’t been paying attention to the recent patent lawsuits. Even if they had, Apple would have long been dead before any court case would have been decided. Even Jobs admitted as much.

Jobs made the comment about the patent disputes at Macworld in 1997 – not to the extent outlined in Isaacson’s book, but it was easy to read between the lines. The full Boston Macworld from 1997 is on Youtube.

Not sure if it’s the contributor or Forbes that insist every story has to have something about Apple in the headline, but this connection is a stretch at best, and actually the fact that it was settled amicably, is an argument against the current patent disputes, not in favor of them.

I’m pretty sure that the real reason Microsoft put $150 million into Apple was to save Apple in order to save Microsoft. Microsoft needed a not-dead Apple to serve as competition, even if it was weak competition. Gates could never have predicted that Apple would have become so strong within four or five years.

However, being the ego maniac that he was, Jobs probably wasn’t grateful for the life preserver Gates threw to him so instead said he was being ripped off by Microsoft. And forever after Jobs always found time to rip Gates in the press.

Though I’m not a huge Gates/MSFT fan, I respect Gates for keeping his mouth shut. He seems like a respectful person who understands common courtesy even when in high stakes competition with others.

dmking (above) has the actual facts and got it 100% right. MSFT did NOT save AAPL. AAPL spared MSFT only because it was more expedient and they did not wish to spend years more in litigation. If anything AAPL saved MSFT.

Here’s what dmking wrote:

“One of the constant myths by Microsofties is that MS saved Apple. What they forget to mention, and what you posted here, is that MS had clearly stolen from Apple. They especially stole code from Quicktime. Jobs and Apple could have won billions and possibly put MS out of business. Instead, they agreed to license patents and MS agreed to continue to develop Office for Mac and put in $150 million, which at that time was petty cash for Microsoft. Jobs turned Apple around and also saved Microsoft from fiscal destruction.”

Ronin- I won’t dispute dmking’s claims. That was not my intent. I am not familiar with all of the ins and outs of who wrote what code when back in the nineties.

Two things: 1) “Jobs and Apple could have won billions and possibly put MS out of business.” — that’s a huge reach. Back then, there never would have been patent judgments that large. Especially with something that was so minor as Quicktime code. Remember, the fine Microsoft had to pay in 2004 for the antitrust suit for the ENTIRE EU was 899 million Euro. I highly doubt that a suit about Quicktime code would have put the largest company in the world at the time (by market cap) out of business. 2) My point about saving Apple to save Microsoft looks at the situation from a much higher level. Business decisions are made at a high level, thinking about the long-term. Zeroing in on things like Quicktime code as reasons for the $150 million investment just gets everyone into the weeds, where coders love to live. Your facts are undoubtedly accurate, but I ask you to think beyond the nitty gritty and consider why Gates’ move was strategic as much as it was defensive.

At the time, MS was also being investigated by the DoJ, which was a really big deal and culminated in a suit in 1998. Apple’s lawsuit was much much bigger than people understand now, even Apple aficionados, and had it still been ongoing in 1998 when the DoJ started its suit, MS would have been in trouble.

The $150m didn’t “save” Apple; it was small potatoes compared to the billion dollar hole they had at that time. Ditching 350 products in favor of 10 saved Apple, nothing else – and that was entirely down to Jobs.

Of course, Apple needed Jobs’ vision to simplify and cut through the clutter. They needed more than money. However, AAPL’s stock rose 40% the day after the MS announcement. The market clearly saw it as a shot in the arm. Credibility breeds confidence in a self-reinforcing circle. It helped take a major question mark about the company’s viability off the table.

LOL! You and dmking are both delusional Apple fanboys. The notion that an almost dead and struggling Apple was going to kill the giant known as Microsoft is nothing more than pure fanboy fantasy, that dmking completely made up to make himself feel better. Then again, Apple sycophants have never been the sharpest knives in the drawer.

Actually, it’s the PC fanboys who are losing it lately. When is Windows 8 going to actually going to come out. It’s going to take the world by storm, just like Vista, right? LOL

Isaacson is a respected journalist (managing editor of TIME) and an even more respected biographer (besides the Jobs book, he has well respected biographies on Henry Kissinger, Ben Franklin, and Albert Einstein)

LOL! Even Vista sold many times more than OS X ever did. In fact, it sold more than multiple versions of OS X ever did. Although your entire fanboy rant is completely irrelevant to the discussion at hand. Would you like some ointment for that raw butth*le?

Apple had MSFT caught red-handed in fact. Apple had demonstrated that the code inside of MSFT’s Windows Media Player was copied directly from Quicktime for Windows, which Apple had contracted out a direct port from the Mac OS code to a 3rd party vendor, San Francisco Canyon Company, who later worked with MSFT.

Apple’s suit was against Canyon, but it was Microsoft who wanted most the litigation to stop as it was under or about to be under anti-trust scrutiny.

Your comment makes no sense. Which partners are you speaking of? Microsoft has 1000s of partners worldwide. Name one that has defected in favor of Apple.

Microsoft does not make phones or tablets. Maybe you are confusing Microsoft with RIM. The BlackBerry was the #1 mobile device for business users. And as for tablets, the jury is still out… Laptops are still the mobile device of choice in the enterprise.

There seems to be a gulf between my views that intellectual property deserves to be protected by law and those who think the whole US patent system should be junked and a Chinese copycat system replace it.

Seriously, that’s a low shot toward people who have invested far more of their time and lives into software than you have. The fact that I cannot write a single piece of software without stepping on a patent, and that there is no way that I can physically analyze the thousands of software patents submitted every year for (in most cases) very dubious claims. Means that people like me don’t have a chance of succeeding as an independent developer. Whats worse is when people like you attempt to feed the fire by defending the ever growing pile of sh#t software patents with statements like that. Meanwhile large corporations and NPE’s are walking all over people like me with patents like “this is not that” or “providing a file in multiple languages”.

“Intelectual property” is not property, nor is in intelectual It’s just a way for people who already have money to squeeze more of it out of those of us who do not.

There seems to be a gulf between my views that intellectual property deserves to be protected by law and those who think the whole US patent system should be junked and a Chinese copycat system replace it.

Seriously, that’s a low shot toward people who have invested far more of their time and lives into software than you have. The fact that I cannot write a single piece of software without stepping on a patent, and that there is no way that I can physically analyze the thousands of software patents submitted every year for (in most cases) very dubious claims. Means that people like me don’t have a chance of succeeding as an independent developer. Whats worse is when people like you attempt to feed the fire by defending the ever growing pile of sh#t software patents with statements like that. Meanwhile large corporations and NPE’s are walking all over people like me with patents like “this is not that” or “providing a file in multiple languages”.

“Intellectual property” is not property, nor is in intellectual It’s just a way for people who already have money to squeeze more of it out of those of us who do not.

Hey Mr. Gates, As one of our most influential Business leaders, Don’t you think it is time to bring back the outsourced American jobs from China to put Americans to work with Computers with the label “made in America”? Show us that you care about USA than making a few more Billion!

Regarding, “There seems to be a gulf between my views that intellectual property deserves to be protected by law and those who think the whole US patent system should be junked and a Chinese copycat system replace it.”

I can’t speak for anyone who thinks the entire patent system should be junked as I don’t know any, but most of my colleagues in the software industry along with companies such as Google believe that *software* patents are detrimental to the industry. A drug of mechanical device can often require millions of dollars of R&D to produce. I have no problem with protections for those investments.

Compare this with many software patents which take literally days or weeks of effort to go from idea to finished product. The fact that there are whole companies whose sole existence is to buy up software patents and use them offensively to extract royalties from other companies should be a sign that this part of the system is inefficient and needs to be addressed.

Of course Google would feel that way, considering they’ve stolen other people’s work so often. I wouldn’t cite a company that violates patents so willfully and intentionally, as not liking software patents. The answer should be obvious.